HMRC has issued a brief on two simplifications introduced for businesses trading below the VAT threshold of £82,000 that make supplies of digital services (telecommunications, broadcasting or electronically supplied services) to consumers in other EU member states, which is run through the MOSS VAT reporting system
Following changes to the EU VAT place of supply of rules for digital services, from 1 January 2015 the place of taxation is determined by the location of the consumer, rather than the business as previously.
The UK introduced the VAT Mini One Stop Shop (MOSS) regime to assist micro businesses in meeting the new requirements.
Revenue and Customs Brief 4 (2016): VAT MOSS - Simplifications for businesses trading below the VAT registration threshold outlines additional measures to reduce the impact of the changes for the smallest businesses.
The first relates to the evidence required to determine where the customer is located. From the start, HMRC has allowed UK businesses that are below the UK VAT registration threshold and registered for VAT MOSS to base their customer location decisions on a single piece of information provided to them by their payment service provider, rather than the two pieces of evidence usually required.
HMRC says it recognises that some small businesses have still found this difficult. As a result, businesses below the UK VAT registration are now allowed to exercise their best judgement in deciding where their customer is located.
HMRC says micro businesses can base their ‘customer location’ VAT taxation and accounting decisions on a single piece of information, such as the billing address provided by the customer or information provided to them by their payment service provider.
The second measure concerns whether or not some activities fall within the scope of the rules. There is no registration threshold on cross border supplies of services and businesses of all sizes fall within the scope of the changes. However, this only applies where supplies are made in the course or furtherance of a business. If activity is carried out as a hobby (ie, only on a minimal and occasional basis), HMRC does not normally see this as a business activity for VAT purposes.
HMRC’s analysis of the VAT MOSS returns submitted by UK businesses so far indicate that some of those registered for VAT MOSS may not be in business for VAT purposes.
It now says it will contact those already registered for VAT MOSS whose returns suggest they may not be in business.
HMRC’s brief is here
The updated guidance is here
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